Here follows the text of a report I put together in mid 2009 in connection with an application to the Economic Development Department of the States of Jersey for the role of "E-Commerce Manager", which was a position intended to lay the foundations for an electronic commerce industry in Jersey, Channel Islands. Notably, the report pre-dates the introduction of the Apple iPad and the mass adoption of 2.5G, 3G and 4G telecommunications technologies, of smart phones and of tablet technologies generally. Easy to use tablet technologies have, in my view, been highly disruptive to the marketplace for ICT; and have lead to significant societal changes since their introduction. On reflection of the comments made herein, it is particularly interesting to note the role of cloud technologies in servicing the marketplace established by the tablet, smart phone and converged entertainment markets.
Information communications technology (ICT) is principally an enabling technology that is typically applied to automate processes that require manual intervention, or are subject to procedural steps.
Electronic commerce is in essence the application of ICT to the processes associated with economic activity: information exchange, contract formation and performance. To apply electronic commerce to economic development in Jersey it is necessary to consider –
- the structure of the Island’s economy at present;
- how the Island’s economic structure may develop over time; and
- likely technological, economic and political developments.
This research note briefly considers these areas and offers a selection of ideas to address the potential needs of Jersey’s economy going forward. This research note is not the product of exhaustive analysis and does not address, in detail, possible electronic commerce development in the finance industry which would require research into the specific nature of financial products and services offered by businesses in Jersey.
Trends in Jersey’s Business and Economy
Economic structure – In 2007, Jersey’s economy was structured as follows, in terms of gross value added (GVA) –
- finance: 53%
- public administration: 7%
- wholesale and retail: 6%
- construction: 5%
- transport, storage and communications: 4%
- hotels, restaurants and bars: 3%
- manufacturing: 2%
- agriculture: 1%
- other business activities, such as architects, cleaning services, advertising: 7%
- rental: 11%
Cost base – Jersey’s cost base has been rising at an unprecedented rate since the mid-1990’s, particularly in relation to living essentials: housing, labour and goods. For example, since 2002, the house price index shows increases of approximately 60%; since 2000, average earnings have increased approximately 44%; and since 2000 the retail price index shows increases of approximately 37% (source: States of Jersey Statistics Unit).
Skill base – Jersey’s skill base is structured as follows –
- no professional qualifications: 58%;
- teaching qualifications: 5%;
- medical and health care specialists: 1%;
- business, finance or administration professional qualifications: 11%
- other professional qualifications: 22%.
Government revenues – With the introduction of the zero-ten tax regime, in 2010 approximately 84% of Jersey’s estimated government revenues of £579 million is expected to be generated through income tax whereas goods and services tax is expected to generate approximately 8%, and impots duty is expected to generate approximately 8.4%.
Jersey’s government is becoming increasingly dependent upon income and expenditure of local people, rather than depending upon the profits of resident and non-resident businesses. There is a generalised trend among non financial businesses towards reduced profits due to competition and, as other jurisdictions begin to compete with Jersey in the financial services sector, it is possible that profits and remuneration in the finance industry will begin to fall as well. Government income is threatened further by changes in the structure of Jersey’s financial and non-financial labour market: people on lower incomes contribute less to tax revenues than those on higher incomes, particularly while the rate of goods and services tax remains low. Reduced demand for finance industry labour coupled with increased redundancies could lead to a generalised trend towards lower paying jobs and unemployment.
Economy – The local economy is critically dependent upon income generated through the export of products and services including financial services, electronic commerce, tourism and agriculture.
The financial services industry is threatened, generally, by competition between jurisdictions: as an industry increasingly based around tax neutral legal structures, and administration of those structures rather than necessarily being based on tax avoidance, or the exploitation of double taxation relief it is vulnerable to competition from similar, self governing offshore jurisdictions operating with lower cost bases.
The strength in the Island’s finance industry lies partially in branding, in experience, in the availability of suitably trained and experienced workers and, interestingly, in the existence of what might be termed a “bit slice” industry: an industry typified by numerous smaller entities that specialise in focused technical areas that together form compound services.
The electronic commerce industry is threatened, generally, by increasing cost bases and import controls by countries receiving goods from Jersey: for example, the European Union’s de minimus VAT exemption threshold could be withdrawn or its benefits eroded over time through inflation.
The tourism industry has been in decline for many years flowing from the high cost of reaching the Island, and the Island’s generally high cost base.
The agriculture industry has also suffered due to the high cost of Jersey produce, and increased competition from producers of similar products using highly automated and controlled production environments.
Trends in computing
There a number of identifiable trends in the computer industry –
- increased thread processing capability of computer processors where most advances in computing performance are based on increases in the number of separate tasks that may be executed at a given time rather than acceleration of any particular task;
- establishment of huge data centres for running client applications on a scaleable basis (Google App Engine, Amazon EC2, IBM Cloud);
- computing models based on virtual machines and virtualization which enables applications to execute independently of a particular hardware / software environment to facilitate cloud computing.
There is a general trend, throughout the developed world, away from manufacturing towards the provision of services, the development of intellectual property and of the development of technology generally.
In common with the general trend, much of Jersey’s continued success can be attributed to innovations in –
- legal structures, services and rulings;
- financial products;
- electronic commerce systems;
- horticulture and agriculture.
The States of Jersey has made significant commitment towards industry bodies generally in relation to the finance, tourism and agricultural industries however the efforts appear to be concentrated on marketing the Island’s product offerings rather than developing new products and services.
A foundation for science, technology and industry in Jersey
A foundation for science, technology and industry could be effective in encouraging professionals at all levels of Jersey’s industries to participate in developing new products and services jointly or otherwise assist in the establishment of compound products and services derived from bit slice product and service providers. It would also assist in increased entrepreneurial activity, representing a hub for businesses seeking particular services or products, and those providing particular services or products.
The States of Jersey commits significant resources to, inter alia, the development of arts, sports, education generally and to marketing the Island’s products yet it does little, if anything, to support and nurture the sciences and academic developments that represent the bedrock of future revenue generation.
Retail services – A significant proportion of the Island’s unskilled labour service the Islands retail and electronic commerce based retail industries. It is crucial for Jersey’s economy that Islander’s shop locally and that, where possible, the Island continues to supply goods outside the Island to maintain valuable transport and communications channels.
There is scope for creating tools and services that aggregate available products from Jersey for the purpose of both inward and outward online marketing and to enable retailers to gain market intelligence. Searches for particular products using popular search engines often return references to comparison sites rather than providers directly: for example, Kelkoo, NexTag, Froogle and eBay. A product-oriented store front for Jersey could help to promote the Island’s electronic commerce industries as a whole and potentially facilitate wide access to a platform for selling goods online for local retailers and individuals without the resources to establish outlets themselves.
eBay, for example, is widely used by people wishing to commence trading from home and by businesses that do not have the technical and financial resources to establish and market an electronic commerce website. eBay is also a recognized source of sales even for those businesses that have established electronic commerce websites.
Professional services – We can differentiate between professional service providers that provide knowledge and expertise relating to particular localities, and those that provide knowledge and expertise in a particular technical domain. For example, an architect or a lawyer may provide specific knowledge and expertise relevant to the local planning or legal regime whereas an asset manager will provide knowledge and expertise relating to investments generally available to a client wherever they are based.
Professional service industries that are not founded on local knowledge are highly mobile leading to competition between jurisdictions for both labour resources and a favourable tax environment. Such mobility is readily supported by computing models based on remote access to computing facilities: for example, remote desktop and Citrix XenApp / MetaFrame.
The future of professional services for both operational and business continuity purposes may be increasingly based around contract workers who are provided with remote access to virtualized data centres and voice over IP telephony, rather than retained employees using internal computer systems suggesting that jurisdictions may need to consider establishing mechanisms for organising and promoting classes of cloud knowledge workers, rather than promoting industries generally.
Legal services – There may be scope for the development of an electronic court system to facilitate dealing with claims arising from common, low value contracts or for interpreting template-based contracts. For example, many electronic services use relatively standard terms and conditions but enforcement in the electronic environment is difficult and expensive. An electronic court of first instance may be beneficial in encouraging both local and foreign businesses to apply a Jersey-based legal system for dispute resolution.
Decisions within such an electronic court of first instance could be made by legal cloud knowledge workers.
How far should the States of Jersey go in facilitating electronic commerce?
The States of Jersey is continually investing in the Island’s physical infrastructure to support economic activity while exercising restraint participating in direct economic activity: it commits substantial amounts of money in the road system, in the town, in the court system and in education to foster an environment in which business can flourish.
As jurisdictions tend towards convergence in the fields of law, tax and labour relations and as businesses tend towards jurisdictional mobility the key differentiator between jurisdictions will become the cost, quality and availability of labour, and quality of life.
In the course of time, it may become necessary for the States of Jersey to go further in facilitating economic activity on the part of its citizens rather than businesses and to provide facilities and infrastructure, and appropriate marketing to expose its labour market to market opportunities avoiding reliance upon mobile businesses.